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Take a Financial Inventory

If you're on top of your regular income and outgo, then maybe you can safely skip this section. But if you're barely making it from payday to payday or have the distinct feeling that you're treading water while others swim merrily by, then here is where you'll find the means to get moving.

One thing you need to do is take a financial inventory. That means sorting out the money and other assets that are all yours from those that someone else has a claim on -- in other words, finding out what you own and what you owe. You add up the value of everything you own, then you subtract from it the total of all your debts. The result is your net worth.

First, though, it will be helpful to perform another little piece of self-analysis. Taking some time to record what you do with the money that passes through your hands on a day-to-day basis will pay off in valuable information about the state of your financial affairs. It's the first step in getting them under control.

If you haven't been paying much attention to where your money goes, use our household budget worksheet. You'll have exact figures for some expenses -- mortgage or rent, for example, and insurance premiums -- and you can estimate others on a monthly basis. Go over your paychecks, bills and credit card statements. Hang on to cash-register receipts from stores, gas stations, and restaurants. The more actual expenditures you can pinpoint, the more you'll know about your spending habits when you're through.

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No matter how this exercise comes out, you're going to be confronted with the evidence of your spending and forced to make some judgments about it. You'll find yourself in one of three situations.

Are income and expenditures roughly in balance? Making it from one year to the next without getting into a hole may be something of a feat these days, but before you start patting yourself on the back, check your totals again. How much did you put into savings compared with what you spent on recreation, gifts or clothing? Out-of-whack entries in those or other categories of discretionary spending could mean trouble's brewing. There's more to good money management than balancing the books. You have to balance your priorities, too.

Did you make more than you spent? This isn't necessarily a good sign, either. Because your cash-flow statement includes savings and investments, you shouldn't have any money left over. What may at first look like a surplus is probably just a failure to remember some spending. Go over the numbers again.

Did you spend more than you made? This is the clearest sign of trouble ahead. You've either been dipping into savings, borrowing money or buying on credit. You can get away with it for a while, and there are times when it's smart to borrow or when you have no choice. But as a regular practice, it's bad money management that will cost you in the long run.

Go over your cash-flow statement carefully, looking for places where your money might be dribbling away. You should begin to spot some ways to plug the leaks.